Stock Market Short-term Cycle Transitions to Bearish Translation

| May 16, 2011

The S&P 500 index closed moderately lower today, moving down to a new short-term low for the downtrend from the beginning of May and breaking well below support at the lower boundary of the power uptrend from March. The breakdown reconfirms the downtrend from early May and favors a relatively quick move down toward strong congestion support in the 1,300 area.

With respect to cycle analysis, today’s decline indicates that the alpha high (AH) likely occurred last week on May 10 and signals a shift from right to left translation.

A continuation of the short-term downtrend during the next few sessions would confirm the AH formation and new bearish translation. Alpha phase rallies rarely last less than 5 sessions and the confirmed formation of an AH only 3 sessions after the STCL would be a bearish sign that suggests the development of another potentially violent retracement similar to the March decline.

Today’s decline in treasury yields also favors the development of additional short-term weakness in the stock market. The 10-year Treasury note yield returned to recent lows today, signaling the possible formation of the latest short-term cycle high (STCH) on May 12.

If the 10-year yield subsequently moves down to a new low during the next few sessions, the formation of the new STCH would be confirmed and additional losses would be forecast for both yields and stocks.

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Category: Commentary, Market Update


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